For the first time since the release earlier this week of a very critical report produced by a short seller, the management of Quebec plastic recycling company Loop Industries responded to most of the accusations it contains on Friday.
Posted on October 17, 2020 at 9:00 a.m.
The report published by the firm Hindenburg Research shook the company, whose stock lost about 35% in two days on the NASDAQ stock exchange, where it is listed. Its market capitalization thus fell by around 165 million US.
Hindenburg is an activist investor who sold Loop shares short before releasing his report, putting himself in a position to profit from a drop in his stock. This is a method regularly used by investors who believe they are spotting problematic companies.
Check out Hindenburg’s report: https://hindenburgresearch.com/loop/
After initially refusing to respond directly to Hindenburg’s allegations except by way of a short statement, Loop and its founder Daniel Solomita on Friday welcomed representatives of Press at their head office in Terrebonne.
The effectiveness of the plastic recycling technology developed by Loop, strongly questioned by the Hindenburg report, has been repeatedly validated by the company’s partners and investors, insists Mr. Solomita.
Loop submitted to Press two contracts between it and Pepsi, on the one hand, and Coca-Cola, on the other hand, filed with the US Securities and Exchange Commission (SEC). While some important information is hidden there, these contracts appear to include pricing, volumes and delivery schedules for the recycled raw material produced by Loop. The two multinationals intend to use it to manufacture bottles. Coca-Cola European Partners, which participated in the announcement of the partnership with Loop in 2018, said this week it has not yet received 100% recycled plastic from Loop. Pepsi did not respond to requests for information from The Press.
Think a customer is going to sign a contract like this without checking the hardware?
Daniel Solomita, founder of Loop
While Hindenburg Research is concerned the company will never publish peer reviews of its research, Solomita says he has no reason to.
“When you have real technology with potential like us, you don’t need to do that. Customers know it, they are the ones who [valident la technologie]. »
Income in 2022
Loop also signed an agreement in September 2018 with plastic manufacturing giant Indorama to create a 50/50 joint venture. This involves Loop’s installation of a production line using its recycling technology to produce raw materials at Indorama’s existing plastics manufacturing facility in Spartanburg, South Carolina.
According to Solomita, the two companies have so far contributed equal amounts, in particular to pay the engineers who sketched the plans. Loop’s disbursements stood at $ 1.5 million as of April 30, according to its annual report.
Here again, argues the businessman, Indorama validated the technology before launching. The original agreement provided for the start of production in early 2020. According to Mr. Solomita, it is now necessary to wait for the reopening of the borders so that work lasting approximately 20 months is launched. The partnership could therefore generate revenues, the first in the history of Loop, in 2022.
A similar partnership with the European company Suez, announced more recently, provides for the construction of a factory in Europe. This could be operational in 2023, calculates Mr. Solomita.
The Terrebonne head office has a “pilot” production line that the company says is perfectly functional. She says she is currently using it to produce nine tonnes of raw materials that will be used with a client for a promotional event.
The Hindenburg report also raised doubts about the competence of the one identified as its “chief scientist”, Adel Essaddam. The author, worries the author of the report, is in his twenties and has no other work experience. He started at Loop in 2016, immediately after completing a technique in the transformation of composite materials at the Cégep de Saint-Jérôme, according to his LinkedIn profile.
The research “is not based on one person,” argues Solomita instead. In a written response that it plans to publish next week, the company will highlight that 26 of its 61 employees are “highly skilled and educated.” Some have doctorates.
As for the fact that the company might be worth nothing, once its cash of around 48 million US dollars is exhausted, as feared by Hindenburg, Mr. Solomita retorts that the company currently consumes about 10 million US in cash per year and that one of its investors holds options allowing it to inject up to an additional US $ 45 million.
Loop also confirmed that the SEC had contacted it to inquire about its technology, following the publication of the Hindenburg report and its backlash on its market value.
“They will watch, but we are not too worried,” says Mr. Solomita.
Loop stock rallied nearly 3% to end the week at US $ 7.84 on the NASDAQ. It was trading at around US $ 11.50 before the report was released.
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